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The impending telecommunications reform in the US is expected to affect the distribution of benefits from telecommunications services and the ability to exert government control over the industry. Competition cannot be an effective alternative to government regulation. When the integrated and regulated common carrier system is eliminated, it is unlikely that such kind of system will emerge from a highly competitive telecommunications sector.

In the wake of the entry of new services in the telephone industry, the local exchange companies (LECs) have expressed their inability to provide subsidized services to residential telephone users. They are facing stiff competition from access providers who are opposed to consumer groups. These alternative exchange providers have wealthy customers who in turn have subsidized residential customers. The LECs want to prolong their entry into the market till the subsidies are removed.

The cost of transactions between the manufacturers and operators is likely to affect the national telecommunications regulation that govern the contractual agreements between firms. Since 1985 there has been a tremendous amount of deregulation in the telecommunications sector. This has induced a large number of investors to enter the market. Cut-throat competition has resulted in the lowering of service charges but the operators failed to cater to consumer-specific needs.

The result of the antitrust case against AT&T which barred the regional Bell operating companies operating as integrated providers in adjacent markets is truly exceptional. The decision was based on monopolization theories which claim that vertical integration would facilitate cross-subsidization and that it would provide incentives allowing for anti-competitive discrimination favorable to its own service. An examination of the performance of a vertically integrated, multiple local exchange carrier present empirical evidence which do not support the theory.

The removal of the Modification of Final Judgment (MFJ) restrictions on the regional Bell operating companies (RBOCs) in the manufacture of equipment for telecommunications would benefit consumers. Deregulation would likely result in new and improved products as well as a more efficient methods of production. The RBOCs' technical knowledge and skill, acquaintance with consumer needs and financial resources are the sources for such consumer benefits. Highly effective regulations that can detect anticompetitive and inefficient behavior have already been developed to prevent such actions so these would not likely occur and offset the benefits.

Development in technology and consumer demands have made realignment, specifically vertical integration, among the firms in the telecommunications industry a winning strategy. Vertically integrated companies producing bundled telecommunications packages demanded by consumers have the edge over disintegrated companies that offer piecemeal parts, which the consumers have to assemble and control themselves. The stockmarket reaction to merger announcements is quite positive as shown by the AT&T-McCaw. The regional Bell operating companies, on the other hand, had shown negative price declines.

Consumers will benefit substantially if the Modification of Final Judgment (MFJ) will release the regional Bell operating companies (RBOCs) from the interexchange services restrictions effected at the time of the AT&T 1984 divestiture. Within the decade after the divestment, state and federal regulations were developed to safeguard anticompetitive actions in the interexchange market. At present, the unregulated market shows no such behavior among the telephone companies. In fact, the release of the RBOCs from the restrictions will foster competitiveness.

Technological changes since the Modification of Final Judgment took effect in 1984 have altered the nature of telecommunications network. These have eliminated the distinction between the local exchange and interexchange services. Because of this, vertical integration results in a more efficient competition in the telephone industry. It would therefore greatly benefit the consumers if the line-of-business restrictions were to be lifted.

The Modification of Final Judgment (MJF) was promulgated to introduce and maintain competition in several markets of telecommunication where regulations through competition would be tenable. This was based on the belief that a divestiture and restriction policy was the only way for competition to grow. At the time of its inception, the MFJ was the best alternative. It answered the problem of cutting through the FCC barriers, but it did not, still is and will not be able to solve the cross-subsidy problem as regulation will always lag behind technological and market boundaries.

The future of the European economy and community depends upon the development of a telecommunications infrastructure and cable television network to allow for the free and fast flow of large amount of information. It is clear that nations have achieved better productivity and optimization of resources by liberalizing the telecommunication services and making it competitive. The economic benefits outweigh the controversy about financial feasibility with public authorities for liberalization. The European Commission's green paper discusses these issues with its impact on society.

Competition in telecommunications services can reduce the tariffs, diversify services, increase utilization and productivity and further innovation. There has been a delay in introducing competition in telecommunications infrastructure in some OECD nations. This has caused economic costs to them, which are discussed. An analysis of these costs shows how competition optimizes the use of resources. Failure or delays in introducing competition in such nations isolates them in the technological and economic development.

Technological advances, market demand, and government regulation influenced the growth of microwave telecommunications in the US. A proposal in 1944 to apply World War II technologies to civilian use was dismissed by the Federal Communications Commission (FCC). However, on popular demand and to end the monopoly of AT&T and the Bell System, the FCC through a series of decisions between 1967 and 1973 allowed competition. Competition stimulated demands for new technologies and resulted in the emergence and rapid growth of innovative products in the U.S., Europe, and Japan.

Japan must deregulate its telecommunications market to make its information systems, vital for the success of modern trade and industry, efficient and cost-effective. This requires the evolution of self-regulatory market mechanisms, such as the Internet network, which retains the flexibility of the system and helps develop it further. Better systems can be evolved by providing users of the information highway with a choice of different types of carriers, and by allowing users and carriers unrestricted interaction with each other.

An analysis of whether the progressive liberalization of the US telecommunications industry has modified the psychology of firms' behavior and resulted in performance changes found that the internal psychology within firms has been significantly altered by market liberalization in terms of fostering entrepreneurially-oriented and productivity-oriented behavior. It was also found that firms formerly owned by AT&T are always superior to independents in terms of revenue-maximizing, but were not cost maximizers during a period of monopoly. Their cost minimization skills were also found to be superior to independent firms in a liberalized environment.

Rules and regulations of telecommunications industries in various nations evolved at a slow rate until the 1980s, depending on their regulatory systems. However, many governments have revised their regulatory systems due to factors such as accelerating innovation in telecommunication services and technology, policy shifts leading to privatization of public telecommunications operators and the emergence of competition. Policies for increased competition need modified rules, leading to the formation of new policies in the atmosphere of deregulation.

An assessment of the US telecommunications industry is presented in the aftermath of the restructuring it was subjected to in the 1970s and 1980s. Deregulation and divestiture apparently benefited the industry as it proved capable of adjusting to major and rapid change. While regulatory actions proved more beneficial in certain cases, offsetting economic adjustments occurred in others which yielded a positive overall outcome.

Deregulation of the telecommunications industry will not improve its efficiency. Telecommunication has features of a natural monopoly, and competition could lead to inefficiency. The goals of public utility regulation should not be limited to enforcing market entry to competing firms as would occur under deregulation. Rather, regulation should serve social interests by the use of public controls to foster economic well being.

Deregulation impacts on US telecommunication services industry are examined. The economic performance of 39 local exchange companies from 1981-87 was analyzed using a multi-period, multi-output ratio analysis model. Results show that deregulation had considerable impact on the various aspects of a company's operation and on performance on the whole. Individual firms were also found to exhibit different response patterns in each of the performance dimensions.